4 things to watch when Big Oil testifies

POLITICO

Published 4:50 pm, Wednesday, May 11, 2011

It's a tradition in Washington: the annual Capitol Hill version of the perp walk for Big Oil.

This time, Senate Democrats are hauling the top executives of five major private oil companies to the Finance Committee to rap them on the knuckles for making so much money - and benefiting from U.S. tax incentives - while charging hardworking Americans $4 for a gallon of gas.

It's political theater at its best: Democrats get the visuals of the top execs standing and raising their right hands and can force them to explain why oil companies need billions of dollars in tax incentives and subsidies. Senate Majority Leader Harry Reid has already scheduled a test vote for next Wednesday on Democrats' plan to repeal $21 billion in incentives over 10 years.

"We urge you to take this opportunity to publicly admit that, given your companies' prodigious profits, you no longer need taxpayer subsidies," the Democrats wrote. "We hope you will do the right thing for our country's fiscal health and endorse their discontinuation."

Not likely. Already, ConocoPhillips has issued a statement, calling the plan "un-American," which has predictably led to another round of grandstanding. Menendez called the response "truly outrageous" and said he would "expect an apology" from Mulva.

A ConocoPhillips spokesman told POLITICO: "We look forward to addressing our concerns over these proposals with the committee on Thursday."

Oil: We pay enough already

A hearing like this puts the oil company execs in a tough spot. They risk giving the Democrats a YouTube moment of appearing not to care for the common man, but they also need to defend their companies' honor and value for stockholders.

Republicans have been steadfast in their effort to paint the proposed incentives repeal as a tax increase or Jimmy Carter-style "windfall profits" tax. But they also need to avoid a gaffe like Texas Republican Rep. Joe Barton's infamous apology to BP last summer. They'll ask the oil execs to help make the case that the companies need the incentives to create American jobs and keep gas prices from rising.

"These unprecedented proposed taxes, targeted at only five companies, would have serious effects on our company," Mulva said in the ConocoPhillips statement.

"We already have the highest effective tax rate among companies in the United States, and these proposals unfairly single us out for additional taxes," he added.

ConocoPhillips reported $3 billion in first quarter profit for 2011, up from $2.1 billion for the year-earlier period. That was the smallest earnings of the Big Five companies, which were led by the $10.7 billion in earnings that ExxonMobil posted for the first quarter.

ExxonMobil's Tillerson will call the Democrats' proposed tax law changes "misinformed and discriminatory," according to prepared testimony submitted to the Finance Committee, adding they would "discourage future investment in energy projects in the United States and therefore undercut job creation and economic growth."

Liberals, meanwhile, think there's room for the tax bill to grow. The Center for American Progress notes that ExxonMobil's average effective tax rates are roughly half of the top corporate tax rate of 35 percent.

Who's to blame?

Oil prices have jumped this year primarily because of Middle East unrest and market speculation.

"Gasoline prices are primarily a function of crude oil prices, which are set in the marketplace by global supply and demand - not by companies such as ours," ExxonMobil's Tillerson is expected to tell the panel.

Meanwhile, the world's top 10 oil companies are state-owned by countries like Saudi Arabia, Iran, Iraq and Venezuela. They aren't targets of the hearing or the bill, and Senate Democrats admit that going after the Big Oil profits won't do anything in the short term or long term to lower gasoline prices or increase U.S. supplies.

The oil companies and the GOP say the incentives repeal is nothing but a tax increase to be passed on to consumers.

Schumer told reporters Wednesday that industry claims that curbing the incentives would raise gas prices is "propaganda." And, he said, "the people that believe that are the five people that are testifying before us tomorrow."

Drill, baby, drill

The oil lobby, Republicans and Gulf Coast lawmakers have relentlessly attacked the Obama administration for a so-called permitorium - a slowdown in drilling permits since the official post-BP spill ban on drilling ended last fall. The Department of Interior says it's going as fast as it can now that new safety regulations are in place, but no amount of new permits will satisfy critics.

There won't be any administration witness at the hearing because Democrats don't want to risk muddling the message. But look for leading questions to the oil execs from friendly lawmakers, asking them how much they'd like new permissions to drill and how much money in taxes and royalties would go to the Treasury as a result. Not to mention getting the U.S. off of foreign oil.

Shell has perhaps the most at stake. It's been looking for permission - and congressional support - to drill off the Alaskan coast next year. The Environmental Protection Agency blocked its permit application at the end of last year on air quality grounds, and environmentalists worry about a Macondo-style blowout in Arctic waters with no infrastructure around to contain it.